4Q2022 Gross Domestic Product: Third Estimate

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In its third estimate of 4Q2022 gross domestic product (GDP), the Bureau of Economic Analysis (BEA) fine-tuned the growth rate of the U.S. economy to a seasonally adjusted and annualized rate (SAAR) of +2.56% (+2.7% expected), down 0.12 percentage point (PP) from the second estimate (“4Qv2”) and -0.69PP from 3Q2022.

As with prior 4Q reports, all four groupings of GDP components -- personal consumption expenditures (PCE), private domestic investment (PDI), net exports (NetX), and government consumption expenditures (GCE) -- contributed positively to the headline. The updated estimates primarily reflected downward revisions to exports and consumer spending. Imports, which are a subtraction in the calculation of GDP, were revised down -- resulting in a larger contribution to the headline.

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As for details (all relative to 4Qv2):

PCE. The downward revision to consumer spending (-$11.9 billion, chained 2012 dollars) was led by services (-$16.7B). Final consumption expenditures of nonprofit institutions serving households (-$8.7B), financial services and insurance (-$6.6B), and other services (-$4.6B) dominated the services category. Upward revisions to spending on goods (+$6.7B) were concentrated primarily among recreational goods and vehicles (+$1.9B) and other nondurable goods (+$1.6B).

PDI. Upward revisions to nonresidential structures (+$7.2B) and residential fixed investment (+$1.4B) were partially offset by erosion in intellectual property products (-$3.7B). Private inventories were little changed (+$0.2B)

NetX. Exports were revised lower (-$13.8B), along with imports (-$13.5B). The net effect was a marginal reduction in this category’s contribution to the headline.

GCE. Upward revisions to state and local gross investment (+$1.1B) dominated this category; federal direct expenditures were little changed (-$0.2B).

Given that the contribution of private inventories to the headline was essentially unchanged, growth in real final sales of domestic product was revised down to +1.09% (-0.12PP from 4Qv2 and -3.35PP below 3Q). The pseudonymous New Deal Democrat considers this data point to be indicative of a pending recession.

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The foregoing comments represent the general economic views and analysis of Delphi Advisors, and are provided solely for the purpose of information, instruction and discourse. They do not constitute a solicitation or recommendation regarding any investment.